Reducing the size of shadows
You have something like this (Blender Internal)


Sunlight lamp only lets you change the angle of the light-source and not the distance of the light to the scene objects. Test this by moving the sunlight closer or further away from the objects, compared to rotating the sunlight. If you want smaller shadows, don't use a sun lamp on its own. When you only have one light-source like a sunlight on default settings, you will get sharp shadows. 

You can fake ambient light by adding Ambient Occlusion or Environmental Lighting, or add a few weak lights to give you more control. 

adding Ambient Occlusion would give you this:


or adding Environmental Lighting for this:


You could also mess with the shadow settings of the sunlight lamp: (softsize &amp; samples &amp; shadow colour). But on its own that still doesn't produce a nicely illuminated image. 



The trick really is to add more lights, but make them weak so as not to saturate the scene. If you are serious about lighting I recommend you read this classic post by Ben Simonds about lighting techniques.